My Mutual Fund: Genesis

July 19th, 2007

As you know I’m starting up a new “My Mutual Fund” series. I will probably have a few mutual funds but today I focused on setting up my first.

For mutual fund compliance reasons, I need about 20 companies in my portfolio. I’d like to keep it as low as possible so I will start my mutual fund off by buying 20 companies… they aren’t timed properly and I may be buying great companies at a less-than-great prices. In reality, I just wanted to jump in and I’ll fix the portfolio later… I know that sounds stupid, but I don’t want to spend 6 months of time to purchase the initial twenty companies or I will not qualify as a mutual fund (for compliance reasons) and Marketocracy won’t rank me. So, I’m going to jump in and buy 20 companies at once… don’t worry, ill fix the portfolio and optimize it as I go.

I have $1 million (I like the sound of that) to work with. I’ve decided I’ll buy each of my 20 picks at a 4% portfolio weight to begin with. This will give me a 20% cash position to take advantage of any further opportunities I find.

My first 20 Picks are as follows:

Silver Wheaton (SLW) – I love it. What can I say? It’s a silver royalty company that has a unique strategy and is highly leveraged to the price of silver. As long as silver does well, it’ll do well. No dividend, but it’s growing fast.

Microsoft (MSFT) – Yes, there are serious threats to MSFT’s monopoly (open source software, Google, etc) but for now, you really don’t have a choice… almost all programs are built for Windows and, it pains me to say this… the system isn’t THAT bad… It’s not perfect, but it isn’t horrible. Microsoft has plenty of revenue and profit and a nice balance sheet. Heck, they might even expand further into the internet realm. A 1.30% dividend and fairly steady growth combined with NO DEBT.

Yahoo! (YHOO) – My favorite internet search engine and the largest site on the internet… I can’t wait for the new publisher advertising network to launch. A lot of smart people are saying how bad Yahoo is doing, but I see plenty of growth left in her and I know how many people are itching to switch their Google ads to Yahoo if the opportunity come along. I’m waiting for the release of the publisher network and the growth rate will surge!

Garmin (GRMN) – The best GPS company. Originally I heard about this company through… my inner voice. I don’t know what to say… I was laying in bed one night and asked myself, “What company should I invest in?” I immediately said Garmin, without thinking. Then I said, “WTF is garmin? Is that even a name?” I ran to the computer (in the middle of the night) and typed in garmin. “What? It’s real?!?” No, I had never heard of GPS systems or any of the companies, I had not seen GPS advertising either. I can’t explain it to this day. But I bought some shares in a fake portfolio (*CRY* with the intention of buying some shares in a real portfolio, but due to college, didn’t get around to it (money broke)). That was years ago at a price of $33.00 per share. The current share price is $82.04… but wait! There was a 2 for 1 stock split so it went from $33 a share when I found it to 164.08! So I would have turned the $3,000 I was thinking of investing at that time into almost $15,000. Come to think of it, that would mean I wouldn’t currently have student loans of over $14,700! Argh. Instead I decided to put $3,000 into a forex account and without making a single trade, the company went bankrupt (Refco) and I haven’t seen the money since. Woops. It even gives out a dividend (though small) of $0.50 per share (0.60%).

Canadian National Railway (CNI) – Railway monopoly for transportation with lots of infrastructure in place. A 1.40% dividend yield and healthy profit margins 26.52% make it attractive.

Canadian Natural Resources (CNQ) – A really good oil company. It has some large oil sands developments and resources that will last for decades. It has a 0.50% dividend yield, impressive growth history and solid assets… and 25%+ profit margins.

Berkshire Hathaway (BRK-B) – The investing legends’ company *Warren Buffett* – includes some solid insurance companies and a wide variety of businesses that give a sense of diversification every mutual fund desires. For such a diversified company, it still enjoys healthy profit margins and has plenty of cash on hand to play with… and take advantage of future opportunities.

General Electric (GE) – The king of electricity and electrical stuff… often considered the best run company in the world. It offers a 2.80% dividend yield and it grows. It even has some new alternative energy plays that are gaining strength.

GoldCorp (GG) – Good ‘ol gold - one of the largest gold producers. It gives me a 0.70% dividend yield (not much, I know) and has had some great growth. Cash flow from operations indicates it is doing alright and this allows me to take advantage of any gold price increases in a stable way… I’m sure I could invest in some smaller gold plays and do much better, but this is proven and even offers a tiny dividend.

Terra Nitrogen (TNH) – Agricultural fertilizer + healthy dividend of 4.90%. I can’t remember why it was on my watch list and in some of my ‘fake’ investment portfolios but it was… and it is WAAAY up in the last year, going from the $20 range to over $125… Hmm, I don’t even know why! I’ll have to do some research… I’ll sell it later if I no longer like it… perhaps I originally had it on watch list due to being undervalued?

Universal Insurance (UVE) - Insurance company. Never heard of it before today. It came up on a filter I ran. It has 25% profit margins, more than $7 cash per share (each share only costs $5.64), impressive revenue growth and profit growth, and cash flow from operations looks healthy. I like it.

Calamos Asset Management (CLMS) – Asset management firm. It came up on a filter I ran. It has impressive cash flow from operations, revenue is growing nicely, it has $24 in cash per share (share price is currently around $28), and its involved in an industry I’m interested in… managing other people’s money. It also offers a 1.60% dividend.

Cummins (CMI) – The diesel engine manufacturer. Sold out years in advance for all manufacturing of new engine lines. Can’t go wrong. I actually purchased some a long time ago in a paper account and have done really well. Wonder if any room left to move up? A small 0.80% dividend and healthy operating cash flows.

Pengrowth Energy (PGH) – A 14% yielding oil trust… love the yield.

Canetic (CNE) – Had grandma buy ADF Energy trust which was bought out by a company that got bought out buy Canetic… Long story short, she over doubled her money WHILE earning 14% dividends, all within two years. Stock is down lately (on Income Trust abolishment news) and its resources should offer good value.

Harvest Energy (HTE) – Oil energy trust. Healthy dividends of 13%… why not?

Tata Motors (TTM) – India play. Can’t go wrong unless management is inept. I’d rather invest in India than China (damn communists, just kidding!). It owns over 90 companies in India including a vehicle manufacturing company. It has more than $5 billion in revenues, it’s profitable and it will give me a 2% dividend.

Coke (KO) – I like the products, it pays a dividend… it’ll be around forever, so why not. I think Pepsi may have more growth left in her while expanding around the world and it owns some quality restaurant chains, but I just like the Coke soft drinks a tiny bit better… though many of my friends don’t. I admit, Pepsi is probably a better investment, but Coke is a company I’d rather own… actually I wouldn’t mind owning them both. That makes no sense…

Health Care Property Investors (HCP) – Health care REIT. Can’t go wrong with baby boomers getting old. It has a 6% dividend yield and has been growing nicely.

Whole Food Markets (WFMI) – Healthy food trend… I still don’t see many whole food markets here, so I guess there is some room to expand and I like the industry.

Well, that’s all for the list of stocks I plan to purchase for my first mutual fund. There are a few picks in there that aren’t my ideal picks, but I can fix it as I go. I wasn’t able to actually purchase these shares for my mutual fund as there has been an odd issue with Marketocracy today. Regardless, those are the companies I’ll purchase ASAP with the mutual fund. I’ll be sure to provide a link as well.

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